GSK Stock (GSK): A BIG Potential Winner When Pharma Tariffs Kick In

On Thursday, September 25, President Trump announced that a 100% tariff will be levied on imports of branded drugs into the United States.

However, as in many other instances that have occurred in this trade war, the devil lies in the details. Companies that commit to building factories in the United States will be liable for exemptions. The businesses that agree to this will only be subject to the baseline tariffs imposed on their country of origin.

One pharma giant is ahead of the curve and poised to entrench its leading position in the industry further. United Kingdom-based GSK (NYSE: GSK), the artist formerly known as GlaxoSmithKline, announced a $30 billion investment, aimed at both R&D and manufacturing. 

Some $1.2 billion has been earmarked for a new factory in Pennsylvania, while the rest will be split between investments in North Carolina, Maryland, and Montana.

This move will secure a very favorable tariff rate — at just 10%, for GSK’s products.

The market has already picked up on the fact that this is gearing up to be a huge advantage for the company. Whereas pharma stocks generally went down following the announcement, GSK rallied.

But here’s what most investors don’t know (yet). This isn’t a turnaround — it’s business as usual. The S&P Pharmaceuticals Select Industry Index is up by 6.21% on a year-to-date (YTD) basis — whereas GSK shares have surged by 17.75% since the start of the year. The S&P 500’s YTD returns stand at 13.13% — so we already have an established pattern of outperformance in the medium term.

Our quant rating system, Zen Ratings, evaluates stocks on the basis of 115 proprietary factors — and it provides another vote of confidence in GSK’s favor. 

The top 5% of stocks are given a Zen Rating of A — and they’ve provided an average annual return of 32.52% since the turn of the millennium. At present, GSK ranks even higher — in the top 2%, and is currently  the 79th highest rated stock out of the roughly 4,600 that we track.

Each Zen Rating is a composite score of 7 Component Grade ratings. We’ll get to those in a minute — first, we’re going to look at something a bit smaller in scope.

GSK is well-positioned compared to rivals and peers. It’s currently the top-rated stock out of a total of 19 in the General Drug Manufacturer industry, which has an Industry Rating of A, and is actually the highest rated industry out of 145 at the moment.

Now we get to the Component Grade ratings and the metrics.

Financials are one of the company’s strong suits. Debt has been steadily decreasing while cash flow has been improving — and GSK ranks in the 82nd percentile in this category.

Our Safety Component Grade rating measures stock price stability, the consistency of revenue inflows, and the predictability of earnings. Here, GSK ranks in the 88th percentile.

However, it’s the rare combination of a fair valuation and high growth prospects that truly makes GSK shine. In terms of its Value Component Grade rating, the stock ranks in the top 13% — in Growth, it ranks in the top 14%.

The stock’s valuation is something that deserves an additional highlight. GSK is trading at a measly price-to-earnings (P/E) ratio of 17.41x, and a price-to-earnings growth (PEG) ratio of 0.59x, indicating that it is still severely undervalued. 

That would be quite impressive on its own — but it’s even more notable when you factor in that the business has beaten earnings estimates for 6 quarters in a row.

While it’s an understandably touchy subject, we do have to mention that Wellcovorin, one of GSK’s discontinued products, is slated to return to market because the Department of Health and the White House have floated it as a potential treatment for autism symptoms. The jury is still out on the matter — what is certain is that this development will surely put a spotlight on what is a promising, undervalued stock that has all the markings of an outperformer.

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